Compromise Effect

Written by Paul Hanke | Oct 26, 2022 4:04:49 PM

What is the compromise effect?

The compromise effect, or the "preference for the middle option," describes a buyer's tendency to choose a middle product more often than the inherent utility would suggest.

Explanation

Buyers tend to be risk-averse and avoid extreme options. They often choose the middle option, which feels neither "too low" nor "too high."

This "preference for the middle" is powerful when buyers feel a need to justify their purchases to an imaginary or real third party and when they are unclear about this third person's preferences. The middle option is the easiest to justify, as research and various experiments like the following show:

An experiment conducted in 1989 presented a diverse set of products, ranging from TVs to mouthwash. Each one had a good-better-best portfolio with one middle product. On average, the middle products had a 17.5% larger market share than the rest of the portfolio.¹
In another experiment, the researchers offered buyers two cameras. The choice shares were equal to 50% for each camera. After researchers introduced a third camera as an upscale option, the middle option increased its share by seven percentage points to 57%, while the lower-end option saw a decrease.²

This research explains why companies in many industries have a "good-better-best" portfolio or create small, medium, and large versions of their products.

Companies also use this behavioral tactic to nudge buyers towards a particular product, e.g., by introducing an expensive product that makes the others look cheaper.

¹Simonson, Itamar (1989), "Choice Based on Reasons: The Case of Attraction and Compromise Effects," Journal of Consumer Research, 16 (2), pp. 158–174

²Simonson, Itamar, and Amos Tversky (1992), "Choice in Context: Tradeoff Contrast and Extremeness Aversion," Journal of Marketing Research, 29 (3), pp. 281-29

How to use the compromise effect

Make sure it works in your context

When customers know the exact product they want or need, they are less likely to be influenced by this effect.

Ensure a balance with your goals

Leveraging the preference-for-the-middle effect can harm your lower and higher-end products, negatively impacting your KPIs.

Use this tactic with care

A carefully calibrated product portfolio architecture is key to maximizing your benefits. If you set an anchor too high, for instance, the portfolio may appear expensive compared to the competition.